The Financial Conduct Authority cracked down on the top payday lenders in 2015. The crackdown was aimed to reduce the payday loan cycle. According to the authorities, a person who takes out a payday loan gets trapped in a cycle of loans. That person needs more payday loans to pay off the previous loans. This way, the total debt and its interest increases on that person. Failure to pay the loans may lead to defaulted credit reports.
Payday loans do not make a cycle, especially if someone manages to pay off the loan amount within their finances instead of paying the loan amount by taking out another loan. However, money is cruel. If you are also trapped in a payday loan cycle then here are a few solutions to get out of the trap.
The First Step to Come Out of Loan Cycle
The fear of bounced checks, poor credit score, bankruptcy, and more may lead to make a person panic and make poor decisions. The most important thing right now is to prepare yourself mentally and try to improve the situation. You need to move on now to learn from your mistakes and avoid these mistakes in future. Also, discuss your financial condition with all family members to prepare them for the alterations in lifestyle. Remember to tell them that the changes are temporary and you will quit these changes after paying the loans.
Use Your Emergency Funds
Many people take payday loans to avoid using their emergency funds. However, the pile of payday loans is also an emergency, especially if you have school going children. You can use a personal emergency fund or the emergency fund provided by your employer to pay the payday loan amount.
Re-consider your budget. Quit shopping or vacation plans to use the money for payday loans. Avoid fancy hangouts or fancy weekend dinners. Save money from your income. However, some people cannot afford to save more money from their budget. The next point is suitable for them.
Increase Your Income
Passive income is a great way to increase your income and pay the payday loan amount without disturbing your budget. This technique is suitable for the people who cannot afford to take out money from their budget. A number of ways like weekend jobs, part-time jobs, and such are suitable techniques. Online income is also a good resource for generating passive income. Freelance writing, logo designing, website designing and developing, filling surveys, and such are safe online income techniques.
Consider P2P Lending
Peer-to-peer lending is an easier way to repay the loan amount. In P2P Lending, the borrowers can lend money from a closed one. P2P Lending offers low interest options as well as provides extra time to collect money for repaying the loan. However, you may lose that relationship if you fail to repay the loan amount.
The concept of Angel Loans has emerged from Angel Investment. In Angel Investment, an unknown person lends money to the entrepreneur for establishing their business. However, the borrower needs to convince the lender for releasing the checks. The Angel Investors lend money to entrepreneurs to help them establish their business. However, convincing an angel lender for lending money to a person, who is already stuck in a loan cycle, could be tougher.
Pay Down the Balance
The government offers debt consolidation loans at low interest rates to help the citizens repay their loan amount. By taking out a debt consolidation loan, you become able to repay the loan balance to get rid of high interests. Remember that the payday lenders may charge the effective annual percentage rate up to thousands in percentile.
Cut Your Expenses
Some expenses are vital for life, like groceries and utilities. However, you can reduce these expenses by simplifying your lifestyle. Cut off extra shows and channels, which you watch rarely. Spend your evenings in public places like parks and libraries. Use free internet instead of the paid data. You can find free Wi-Fi in public libraries, churches, and some cafes. The commercial goods are of two types: Fast Moving Consumer Goods and Fast Moving Consumer Durables. The latter are those that last long, like automotives and machines. Try to restrict your budget to FMCGs only. Avoid all kinds of FMCDs until you repay your loan.
Repay What You Can Afford
Repay as much loan as possible without taking out another loan. The ideal way to come out of a payday loan cycle is to stop taking out more loans.
Consult a Financial Advisor
The financial advisors are professionals with adequate understanding of finding the budget loopholes. They can guide you about the ways to save money while remaining within your budget. You can use an online software application to create a budget.
Make sure to shop in bulk, and during the sale seasons. Always create a list of items before shopping. Always buy according to your list only. Also, keep an eye on the ongoing sales. Use your online coupons to purchase important goods.
From loans to mortgages, you can compare the prices without even stepping into the market. You can compare the prices from reliable sources like Quiddi Compare.
Payday loans are not loan cycles or traps. However, these are the signs that you need to consider your lifestyle to avoid taking out a loan. You can avoid payday loans by maintaining an emergency fund and saving at least 30% of your total income. Passive income can also help you to save more money.